The Brazilian Central Bank has suspended a newly launched system that allows Facebook WhatsApp messaging users to send money through chats, and has asked Visa and Mastercard to stop payments and transfers via the system.
"The deployment of the service without previous analysis by the monetary authority could harm the Brazilian payment system in the areas of competition, efficiency and data privacy," the bank said in a statement.
The system, which was launched last week in a nationwide offering process, allowed users to transfer money to local individuals or companies within the chat, and attach payments as if they were an image or video.
The central move is the latest setback in payments to Facebook, which cut its plans for a global payment system called Libra after facing stiff resistance from regulators.
WhatsApp has more than 120 million users in Brazil, its second largest market after India, where it has also struggled to introduce a payment system.
The Brazilian Central's statement stated that if Visa and MasterCard do not comply with the request, they will be subject to administrative fines and penalties.
"The messaging service will continue to work with local partners and the central bank to provide digital payments to its users in Brazil using a business model open to more participants, which will address the concerns of regulators," a WhatsApp spokesman said.
The Central Bank issued a regulation stating that it may require market participants to obtain prior approval to work in payments, before suspending the operations of Visa, MasterCard and WhatsApp.
Blow to facebook
WhatsApp launched its services in Brazil without requesting an authorization from the central bank, as it was working as an intermediary between consumers and financial institutions.
Some observers described the regulator’s decision as an overreaction, and others said: WhatsApp poses a potential risk to the market and privacy.
"It is strange that the central bank decided to suspend the WhatsApp service, because the bank is already able to supervise all market participants who have joined WhatsApp. In addition, WhatsApp is open to form new partnerships," said Carlos Daltoso, co-chair of shares at Eleven Financial.
WhatsApp started operations in Brazil in partnership with Fintech Nubank, Banco do Brasil SA, in addition to Visa and MasterCard.
In a separate setback for the project, the Brazilian antitrust agency, acronym Cade, banned WhatsApp partnership with credit and debit card operator Cielo to process payments.
The Brazilian central move comes as the regulator prepares to launch its immediate payment system in November, called Pix.
"The service is committed to working with the Central to integrate the systems as soon as Bux is available, while MasterCard said it will adhere to the bank's rule and will continue to develop an innovative payment environment," said WhatsApp spokesman.
Private banks have also been wary of opening up valuable customer data for tech giants like Facebook. Some executives also mentioned security issues, in addition to a lack of accountability if the transaction went wrong.